Process Improvement: The Pareto Analysis

It is likely that everyone reading this post has heard of the 80/20 rule. To review,

Pareto’s rule states that a small number of causes is responsible for a large percentage of the effect, in a ratio of about 20:80. Expressed in a management context, 20% of a person’s effort generates 80% of the person’s results. The corollary to this is that 20% of one’s results absorb 80% of one’s resources or efforts. For the effective use of resources, the manager’s challenge is to distinguish the right 20% from the trivial many.[i]

For a Pareto analysis, you want to focus on the largest percentages that will provide positive payback. I was involved in an improvement project for a service desk (sometimes called a help desk or contact center). The service desk took in 50,000 calls per month. The goal was to reduce that as much as possible. We used a Pareto analysis chart to help. The process went like this:

A group was formed of developers, service desk personnel, and a facilitator. Historical data was gathered on causes for cases.

A Pareto chart was created from the data. We decided to tackle the top two reasons for cases.

The top two reasons for cases were Hardware (HW) and Software (SW).

We then came up with a plan of attack to reduce those two areas. Within two months, we had a new release of software issued to the field and changed out troublesome hardware.

The new Pareto chart looked like Figure 2. We were able to reduce cases by 10% in the first try. Notice that Training popped up as the No. 2 reason for cases.

The process was repeated, and another 10% reduction was made. A third round was not deemed worth the money it would take and the process stopped at that point.

The Pareto chart is a simple way to focus on what will provide the most payback, based on data to support the decision. The Return on Investment (ROI) will be better if you can reduce defects more. Tackling reasons for defects that are the most prevalent allows for more improvement.

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About Joseph Snider

Joseph Snider, D.B.A, MBA, PMP, is an Assistant Professor for the DeVoe School of Business. Professor Snider has a D.B.A. in Business Administration, with a focus on Management Information Systems. Most recently, he became certified in project management with a PMP designation. Joe and his wife have resided near Louisville, KY for almost 20 years.